Before you go shopping for Brighton homes for sale, you'll want to make sure you're financially prepared. That includes looking at the 5C's of credit. Lenders use this formula to determine your creditworthiness, and knowing what they'll look for ahead of time can help ensure you'll be able to finance the home you fall in love with.

1. Character. Banks don't want to lend money to people who aren't responsible enough to pay it back, which is understandable. According to the U.S. Census Bureau, both the average home price and median home price in 2018 was well over $300,000, and that is a lot of money for most people. Your mortgage lender likely doesn't know you personally, so they use your credit reports, history and scores to help determine if you're trustworthy, credible, and fiscally responsible.
   
   
2. Capacity. A lender will want to know if you have the financial ability to pay back the loan. They will consider your income, current employment, and stability of employment. They often want to know you've been at the same job for at least 2 years and make sure you've been steadily employed in the past. This is also where they consider your debt to income ratio and how much of your money is already going to monthly payments.
   
   
3. Capital. Capital refers to how much money you have invested in the transaction (your down payment) and how many assets you'll have available to you after the sale. This includes your savings and other bank accounts, investments, and other property. Basically, anything you could liquidate to pay your mortgage if the need ever arose. And in their view, if you have money invested up front in the form of your down payment, you're more likely to do everything you can to protect your interests. Lenders don't want you to spend every cent you have on a house because it leaves you vulnerable and more likely to default if you lose your job or something else bad happens. When you start to think about buying a house you'll want to inquire about what amount of cash reserves a lender requires.
   
   
4. Collateral. Collateral is something of value that secures a loan. A loan the size of a mortgage will have to be a secured loan, and the property is what is used to secure it. If the worst happens, the lender will want to recoup some of their losses and will sell your home to do so. For this reason, lenders require an appraisal to make sure the house really worth what you and the seller agree that it is.  
   
   
5. Conditions. You have a good amount of control over the other factors on this list, this one, not so much. It refers to local market conditions, economic conditions, interest rates, the cost of living in an area, and just about any other external factor that could potentially affect your ability to pay back the loan, or the willingness of the bank to lend it to you.

It's a good idea to keep in mind that almost every lender uses a different formula to assess your creditworthiness, but most are still likely to be fairly similar. They will also be different from any online tools you may have used. Make sure to ask questions when mortgage shopping to get some insight on what your particular lender may be looking for, and what they consider most important.

When you're ready to buy a home, our REALTORS® can help answer your questions and find the right home for you and your family. Contact us today to get started.